The Lesotho economy has partly recovered from the impact of the global economic crisis despite the effects of floods in the early part of 2011. Over the medium-term economic growth will remain moderate, underpinned by the good performance of the mining sector, reconstruction activities to repair the damage done by the floods, investment in the Phase II of Lesotho Highland project and rehabilitation of infrastructure affected by the floods.
Poverty, which is closely linked to inequality and unemployment, especially among the youth, and HIV/AIDS will remain the main challenge to the country’s growth.
Private sector participation in the economy continues to be challenged by various structural constraints and yet has very high potential for creating employment and alleviating poverty.
Lesotho’s economy showed signs of economic recovery in 2009, following the global financial crisis; however, the impact of floods during early January, 2011 has slowed the pace of the expected recovery. Growth is estimated to have reached 3.1% in 2011 (down by 2.5 percentage points compared to 2010) due to recovery of the manufacturing sector and high demand of diamond exports. Notwithstanding projected higher import requirements and low Southern African Customs Union (SACU) revenue, in the medium-term, growth is forecast to average 4.8%, driven by investment in phase II of the Lesotho Highland project and rehabilitation of infrastructure affected by the floods (Figure 1 and Table 1). Fiscal policy remains dependent on the performance of SACU revenue (in particular, the core SACU revenue, which is non-cyclical) which will average 27% of GDP in the medium-term, much higher than the average of 15% (2010-2011). Lesotho has traditionally relied on SACU revenue to fund close to 60% of its national budget. Lesotho’s share of SACU revenue is expected to decline from M4.9 billion in 2009/10 to M1.7 billion in 2010/2011. The government’s budget of M13.7 billion is based on the assumption of recovery in SACU recovery to M5billion and M4.7 billion in 2012/13 and M4.7 billion in 2013/14.
However, the Government medium-term fiscal sustainability plan entails limiting the fiscal deficit to 3% of GDP while maintaining recurrent spending constant in real terms. The resultant effect of this strategy would be to maintain gross international reserves at five months of import cover and to have a sustainable debt position. Unemployment, especially among the youth, remains a real challenge to the economy of Lesotho. The employment to population ratio stands at 54.1% and it is estimated that 15.3% of the youth (25-29 age bracket) are unemployed. Unemployment is compounded by the small private sector which cannot absorb most of the youth not employed by the public sector.
Lesotho has in the past few years embarked on important reforms mostly related to public financial management in order to improve efficiency of resource allocation. It also adopted a strategic approach to reduce the public debt to sustainable levels by using accumulated reserves to service the debt and to build adequate levels of international reserves. In the medium-term, the rationalization of expenditures focusing mainly on the productive components and pegging overall budget to core SACU revenues will enhance the quality of economic growth. There are fears that the expiration of concessions on textiles under the World Trade Organization (WTO) in 2012 will affect the country’s exports to the USA and hence economic growth in the medium-term. Economic diversification with emphasis on the value chains in agriculture, industry and mining will help mitigate the potential risks from the expiration of the WTO concessions and their impact on the textile industry. These, coupled with improvement of the business environment, should help to attract investment including FDI which will impact positively on economic growth in the medium-term.
Youth unemployment is a critical development challenge in Lesotho. According to the 2008 Labour Force Survey (LFS) youth labour force (15-24 years of age) participation rate stood at 45.1%. At 52.5%, males had a comparatively higher participation rate than females (37.8%). The effort to ease the challenges of integrating youth into the labor market through the promotion of self-employment led to the creation of the Youth Employment Promotion Project (YEP) in 2006. The recent evaluation of the YEP, by UNDP, found a very high level of satisfaction with the programme on the part of the Government of Lesotho, as evidenced by the financial subvention the government will be making to the expanded programme in coming years.
Figure 1: Real GDP growth (Southern)
Table 1: Macroeconomic Indicators 2012
|Real GDP growth||5.6||3.7||3.8||3.9|
|Real GDP per capita growth||4.6||2.7||2.8||2.9|
|Budget balance % GDP||-3||-5||-10.4||2.2|
|Current account % GDP||-22.5||-16.6||-18.8||4.4|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry, fishing & hunting||7.9||8.6|
|Agriculture, livestock, forestry and fisheries||-||-|
|of which agriculture||-||-|
|Mining and quarrying||4.7||7.9|
|of which oil||-||-|
|Electricity, gas and water||5.1||4.7|
|Electricity, water and sewerage||-||-|
|Wholesale and retail trade, hotels and restaurants||9.1||9.1|
|of which hotels and restaurants||-||-|
|Transport, storage and communication||6.4||6.7|
|Transport and storage, information and communication||-||-|
|Finance, real estate and business services||18.6||17.7|
|Financial intermediation, real estate services, business and other service activities||-||-|
|General government services||-||-|
|Public administration & defence; social security, education, health & social work||-||-|
|Public administration, education, health||11.3||12.5|
|Public administration, education, health & other social & personal services||-||-|
|Other community, social & personal service activities||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Wholesale and retail trade, hotels and restaurants||-||-|
Economic growth at 3.1% in 2011 was lower compared to the previous year when Lesotho showed modest recovery from the impact of the economic crisis. The drop in growth mainly reflected the impact of the floods in the early part of the year which damaged infrastructure, crops and livestock. This notwithstanding, the recovery of the prices of rough diamonds in 2011 resulted in renewed efforts in Lesotho to re-open mines that had been shut down (Liqhobong and Kao) at the peak of the financial crisis and to open new ones at Mothae and Lemphane.
In the medium-term, growth is expected to be broad-based and average at 4.0% annually. Growth will be supported by public investment as well as private sector participation. The secondary sector, which is dominated by manufacturing constituted 29.7% of GDP in 2010. This sector has been one of the major contributors to employment and is expected to play an important role in the medium-term. In support of this sector, the government has allocated US$10 million (US$: 10 Maloti) in the 2012 budget to enhance manufacturing opportunities and markets. In addition, the new jewellery manufacturing and diamond centre in Maseru which is due to start operation in February 2012 is expected to promote export of products with substantial value added. The construction sub-sector is expected to be one of the main anchors of economic growth in the medium-term. The sub-sector is expected to benefit from activities related to the implementation of the US funded Millennium Challenge Account (MCA) such as the construction of the Metolong Dam as well as phase II of the Lesotho highland project.
The agricultural sector contributed 8.6% of GDP in 2011 and remains the main source of employment and sustenance for the majority of the rural population. Unfortunately, the sector was hit hard due to heavy flooding in the early part of 2011. In the medium-term, agriculture is expected to provide agro-based inputs to industry through the planned government diversification strategy which will be supported by Public -Private Partnership in irrigation infrastructure. Public investment in rehabilitation of irrigation schemes and training centres (US$ 6 million) will spur the sector’s contribution to GDP in 2011 and the medium-term.
Tourism is another sector with high employment potential, but its contribution to GDP, at 1.4%, remains very low. Given the country’s location, there are plans to establish a joint tourist circuit with South Africa. In this respect, the planned investment of US$ 23 million will unlock the country’s potential and raise the sector’s contribution to GDP in the medium-term.
The overall economic environment in 2011 remained stable. Inflation fell from 7.2% in 2009 to 3.6% in 2010, and then rose to 4.7% in 2011. The rise in the consumer price index (CPI) during 2011 resulted mainly from increases in the prices of consumer goods, particularly food and petroleum products. This was in line with global trends in the prices of food and crude oil. In the medium-term the influence of these factors is likely to continue thereby leading to further price hikes. However, the projections by government indicate that inflation will remain below 7% over the medium-term. This is largely in line with the predictions AEO 2012 predictions.
On the aggregate demand side, the private sector was the main contributor to growth in gross investment in 2011 and this dominant role is expected to continue in the medium-term. This underscores the need to enhance the enabling business environment and public private partnership. Public consumption which contributed 1.7% to growth is expected to be scaled down to 1.3 % to make way for increased private investment. The contribution of private investment to growth is expected to average 1.4% annually over the medium-term. The contribution of exports to growth was 5.9% in 2011 and this will decline to an average of 1.7% annually in part due to the impact of the expected expiration of WTO textile concessions. The above notwithstanding, growth in exports will more than outweigh the negative impact on GDP of increased imports to support construction.
In the wake of the drop in the South African Customs Union (SACU) revenues which was prompted by the impact of the global economic crisis, Lesotho’s government has been cautious. However, fiscal policy in 2011 was more expansionary compared to 2010. As a result, the overall deficit worsened to 8% of GDP from 3%. Apart from the drop in SACU revenue, the rise in expenditures by 1.9% of GDP also contributed to the worsening fiscal deficit. Expenditures were mainly driven by increased interest payments, employer contributions, subsidies and payments of extra budgetary units. Over the medium-term, the fiscal stance will be less expansionary and the fiscal deficit is forecast at below 4% of GDP in 2012. This partly reflects the commitment to eliminate unproductive expenditures. The main focus will be on supporting capital spending while maintaining recurrent spending at the same level in real terms. The verification of domestic arrears is underway awaiting the formulation of an audit plan by the government of Lesotho. In the meantime, the line ministries have been instructed to undertake monthly verification of data in the system and to report any commitment arrears. The objective is to avoid accumulation of domestic arrears which tend to erode public trust in government, and undermine the gains in economic stability achieved thus far. The government has in place a medium-term framework with a spending ceiling which is expected to enhance the credibility of government planning and avoid arrears in domestic commitments.
Following the global financial crisis, the capacity of the public sector to mobilize domestic tax revenues was reportedly affected in many countries. In Lesotho domestic resource mobilization efforts had remained strong. However, domestic resource mobilization in terms of the share of revenue to GDP was at 38.6% in 2011 down from the average of 56% for the previous two years. Reforms aimed at strengthening the mobilization of tax revenues including VAT and the capacity of the revenue authority have served to boost efforts at raising domestic revenue. The ratio is projected to increase to 47% of GDP in the medium-term owing to the expected recovery in SACU revenue. This is predicated on a projected increase in international trade flows to the SACU region as the global economy recovers and growth in taxable income of residents. This underlines the importance of having inclusive growth that will ensure that the vast majority of the population is productively employed and paying taxes. Equally, it points to the need to improve the business environment and create important positive externalities that will give attractive signals to investors and development partners. Additionally, improving fiscal performance in the medium term would call for quality government expenditures that will deliver socially productive outcomes. The authorities would have to desist from sizeable annual increases in the wage bill as revenue improvements are expected to remain modest over the medium-term (Table 3).
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||47.4||52.3||62.3||64.5||62||67.4||56.4||63.5||65.6|
|Total expenditure and net lending (a)||52||49.3||50.8||55.6||60.1||70.5||64.4||66.9||66.1|
|Wages and salaries||15.4||14.5||15.6||13.8||14||17.8||16.3||16.5||15.6|
A key goal of the country’s monetary policy is to maintain Net International Reserves (NIR) at or above the minimum of USD 956 Million. These reserves are kept to ensure the parity between the South African Rand and the Loti is maintained. This also acts as an anchor to inflation since the bulk of Lesotho’s imports are from South Africa. In 2011, the economy remained stable. Inflation was moderate at 4.7% in 2011; this was underpinned by increases in the prices of consumer goods, particularly food and petroleum products. IMF program monitoring reports indicate that the monetary policy indicators are on target. The reserves were US970 and would cover 4.7 month of imports of goods and services. In the medium-term, the reserves are targeted at five months of imports and inflation is targeted to remain below 7%, annually.
Economic Cooperation, Regional Integration & Trade
The deficit on the external current account which was 17.3% of GDP in 2011 is projected to fall to 9.7% in 2012 as a result of growth in export volumes, increase in current transfers and the factor incomes over the same period.
Lesotho has a long history of membership in regional groupings. It is currently a member of the Southern Africa Development Community (SADC), SACU and the (CMA). The country has been very active in joining new initiatives. In 2007, Lesotho, together with Botswana, Mozambique and Swaziland, signed an Interim Economic Partnership Agreement with the EU after extensive negotiations which began in 2004. Similarly, in August 2006, Lesotho and other leaders of SADC endorsed a trade protocol, which led to the launching of the SADC Free Trade Area in August 2008. Increased regional integration and the development of new partnerships with Asian countries, China in particular, has opened up new markets for exports. While the bulk of Lesotho’s exports are destined for the US market, India and Pakistan are increasingly becoming important trading partners providing inputs into the textiles and clothing sub-sector.
Additionally, the government has effectively explored and taken advantage of opportunities arising from Lesotho’s geographical location, including through the Highlands Water Project and favourable road infrastructure to boost economic growth. However, the process of economic diversification and transformation has been slow. According to World Economic Forum, on a scale of 1-7, seven being the highest score in global competitiveness, Lesotho’s score fell from 3.5 to 3.3 between 2009 and 2011, respectively.
Development partners including the World Bank and the African development Bank are working closely with the government to support efforts towards economic diversification and export competitiveness. According to the 2011 Global Competitiveness Index, Lesotho is ranked 135 out of 142 economies. The country’s competitiveness is largely affected by structural factors which include high utility costs in particular telecommunications and energy supply shortages. The country has in the recent past embarked on reforms such as the Land Act passed in 2010 and establishment of a one stop Centre for business counseling and mentoring that have facilitated improvement in the investment climate. However, more reforms are needed in order to attract more domestic and Foreign Direct Investment (FDI). Lesotho’s inflows of FDI averaged US$ 93 million annually for the period 2006-2007. However, from 2008 onwards the FDI inflows dropped to less than US$ 57 million compared to 2006. Unlike most African countries, close to 90% of FDI flows to Lesotho had targeted export oriented manufacturing. Most FDI originates from Taiwan whose outward FDI as a share of total trade in merchandise and services has declined from close to 5% in 2007 to 4% in 2010.
Cross border trade plays an important role in improving the social and economic well-being of border communities by generating employment and incomes to support the livelihoods of these communities. Cross border trade is sensitive to government policies with respect to border controls for visa and onerous procedures for customs clearance at the border including delays due to limited working hours. In Lesotho, cross-border trade remains a challenge. The country was ranked 147 out of 183 with regard to cross-border trade (2012 Doing Business Index). Lesotho faces various challenges with regards to efficiency and effectiveness of the clearance process by Customs and other border control agencies. The government is taking steps to improve its ranking. It plans to open its border twenty four hours a day and is recruiting competent staff to handle cross-border transactions. Since Lesotho has only one neighbor, South Africa, harmonization of border policies remains critical in the medium-term. Combined efforts tailored towards single stop customs practices in cross-border clearance would be required.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||57.3||49.3||50.9||53.6||42.2||40.1||46.1||49.8||49.7|
|Imports of goods (f.o.b.)||105.8||96.3||101.6||93.1||91.3||90.2||91.5||97.7||97.8|
|Current account balance||-9||4.6||13.4||12||-0.6||-22.5||-17.3||-9.7||-14|
The bulk of Lesotho’s total public debt (99.6%) is owed to the World Bank and the African Development Bank. The debt owed to these institutions is concessional which partly explains Lesotho’s moderate risk of debt stress over the medium-term. According to the 2010 debt sustainability analysis jointly conducted by the World Bank and the IMF, Lesotho’s present value of external debt to GDP was 28.3% in 2010 far below the 40% indicative threshold. In the medium-term, the ratio is projected to be 2% above the threshold on the back of new non concessional borrowing to finance the Metelong Dam project.
Lesotho’s net barter terms of trade has declined by 33% over the decade (2000-2010). This decline in terms of trade and exchange rate depreciation could make external debt unsustainable. This underlines the need to support government’s diversification drive aimed at making the economy more resilient to these shocks. Fiscal consolidation and mobilization of concessional resources to finance development remain critical to the medium-term debt sustainability.
Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)
Economic & Political Governance
The country’s private sector has remained small contributing 14% to GDP. The sector is comprised of a wide range of businesses from micro to medium enterprises and affiliated business associations. These include the taxi owners association, truck owners associations, small traders associations, street vendors associations and textile exporters. Since the inception of the African Growth and Opportunity Act (AGOA) in 2000, the textile industry has benefited from US trade concessions. Consequently, Lesotho’s manufacturing subsector, in particular, exports of clothing and textiles, has become a major source of economic growth and employment, currently employing over 40,000 workers. However, the sector has been affected by the weak demand, particularly, in the US, and by the imminent expiration of US concessions in 2012.
Apart from this, the private sector is confronted with various challenges including an unfavorable business environment. According to the 2011 Doing Business Indicators, the private sector in Lesotho is constrained by difficulties in registering property, obtaining permits, accessing credit, and protecting investors. These are areas which are critical for attracting and retaining investors including Foreign Direct Investment (FDI). However, the government is taking steps to improve the business environment through various reforms. The new Land Bill, which was passed by Parliament and assented to by the King in 2010, is expected to ease access to land. More is required to improve the enabling environment for the private sector. For example, according to the Global Competitiveness Index (GCI) 2011-2012, with regard to procedures for starting up business, Lesotho is ranked 63 out 142. However, in terms of market dominance its rank is 108th out of 142 countries. This is due to the presence of monopolies in some sectors of the economy such as telecommunications. The government is taking steps to address the above including the enactment of the Companies Act in 2011 which simplified the procedures and requirements for registering a company. The government has already appointed an able deputy registrar and registry clerks and aims to reduce the number of days for registering a company to one day. The automation of the Companies Registry and the implementation of a new business plan for the One Stop Business Facilitation Centre will greatly improve the business climate.
In addition, human capacity constraints and lack of adequate resources have continued to prevent the implementation of laws that protect property rights resulting in a backlog of lawsuits. Despite this, the recently established Commercial Court is making some progress in this area.
The financial sector is governed by the Central Bank of Lesotho Act of 2000 and the Financial Institutions Act of 1999. The sector is still small comprised of four commercial banks, five insurance companies, two collective investment schemes, insurance brokers, and credit and savings cooperatives. Given the small number of commercial banks, competition in the sector is limited and the technology being used is not sophisticated. The sector is still affected by various constraints which have limited the extent of service provision over space and time. These include poor communications infrastructure, in particular, internet access and bandwidth (Lesotho ranked 140 out of 142 economies by GCI). Additionally, the 2011 GCI identifies access to finance among the most problematic factors for doing business in Lesotho. In general, financial development is still poor (ranked 120 out of 142 economies by GCI). Notwithstanding the above constraints, Lesotho’s financial sector remained sound during and after the global financial crisis. The share of non-performing assets to total assets was 2.9% by end June 2011 compared to 3.1% in December 2010. The credit to deposit ratio increased from 35% in 2010 to 41% in 2011.
However, to further enhance the sector and reduce the risks arising from inadequately regulated non-bank financial institutions, the 2011 Financial Institutions Act is expected to strengthen the prudential regulations of Savings and Credit Cooperatives and other non-banking financial institutions. A credit reporting bill has also been submitted to Parliament. Once passed into law, both of these will enhance the financial sector. Moreover, coordination with the Anti-money Laundering and Financial Intelligence Unit will enhance the resilience of the financial sector. According to the 2011 US State Department Money Laundering Report, Lesotho is steadily increasing its capability to control and monitor money laundering.
The Millennium Challenge Corporation in conjunction with International Fund for Agricultural Development (IFAD) are working with the government on the modernization of PostBank aimed at extending financial services to rural areas and providing financial products to small and medium enterprises. These reforms are expected to enhance access to financial services and ensure the stability of the financial sector.
Public Sector Management, Institutions & Reform
The budget process brings together various stakeholders during budget preparation. The budget preparations are guided by the Medium-term expenditure framework and the ceiling dictated by the national resource envelope. Absorptive capacity continues to constrain resource utilization: while some ministries fail to use up their budget allocations by the end of the year, other ministries are unable to meet all their goals because of a lack of financial resources. However, with improved budgeting and deepening of reforms including public financial management, many of the problems that affect resource use will be addressed. The country’s decentralization has advanced (already approved by Cabinet) and an Integrated Financial Management System (IFMIS) is being extended to all government agencies. It is expected that this will improve transparency in resource use and direct resources to the target beneficiaries.
In terms of the quality of management, recruitment and hiring of labour, as well as award of contracts, remain merit-based. This is supported by the Public Sector Act and the 2005 amendment to the Act which fosters effectiveness and efficient use of public services with zero tolerance for corruption.
Natural Resource Management & Environment
Commendable progress was made towards ensuring environmental sustainability. Lesotho has in place a policy framework that allows it to protect and enhance the natural and cultural environment for the benefit of both present and future generations and to endeavor to assure to all its citizens a sound and safe environment adequate for their health and well-being. Lesotho, has a National Environmental Action Plan (NEAP) formulated in 1989 and thereafter launched a National Action Plan (NAP) to implement Agenda 21 in May 1994. The Government of Lesotho endorses and adheres to the internationally accepted principles of the 1972 Stockholm Declaration and the 1992 Rio Declaration as adopted by the United Nations Conferences.
Additionally, it endorsed the Convention on the Protection of Fauna and Flora; Convention on Fishing and Conservation of the Living Resources of the High Seas; Convention on Climate Change, Convention on Biological Diversity, and Montreal Protocol for the Protection of the Ozone and National Vision for Lesotho has been developed. In order to follow up on the environmental policies and their mainstreaming in sectoral planning, in 1994 a National Environment Secretariat (NES) was created. In terms of the new Environment Act, 2008, the former NES is now known as the Department of Environment (DoE) and this department is responsible for administering Environmental Impact Assessment (EIA) in Lesotho.
Lesotho has performed well in terms of integrating the principles of sustainable development into the country policies and programs and reverses any loss of environmental resources. The proportion of land area covered by forest has increased from 1.3% in 1990 to 1.4% in 2010, while consumption of ozone depleting substances in ODP metric tons fell from 6 to zero between 1995 and 2005 and has remained at the new level as of 2009.
The Lesotho highlands power project (LHPP) is estimated to generate 60000 megawatts of wind power and 4000 Megawatt of hydropower. Lesotho offers the opportunity to build one of the highest wind-farms in the world, with more than 80% of its territory lying at least 1,800m above sea level. The electricity generated by wind and water will be used to satisfy domestic demand and exported to South Africa that is keen on keeping pace with growing energy demands.
Lesotho is a constitutional monarchy with a bicameral legislature comprising a Senate and a National Assembly elected since 2002 under a mixed first-past-the-post and proportional representation system with elections held at the end of a five year term. The country has 11 opposition parties and over the last decade, it has had three consecutive democratic elections, with the Lesotho Congress for Democracy Party maintaining power during the whole period. The plurality of political parties and intense political contestation and constant splits of political parties undermined stability resulting in elections-related protests during the last election in 2007. Interventions by the Southern African Development Community (SADC) and other Civil Society Groups helped to resolve the situation. New parliamentary elections are scheduled for 2012. In preparation for the forthcoming elections in 2012, the competing parties have decided to sign an election roadmap. This is expected to diffuse tension among the political parties and pave the way for free and fair elections.
Thematic analysis: Promoting Youth Employment
Youth unemployment is a critical development challenge in Lesotho. According to the 2008 Labour Force Survey (LFS) the labour force participation rate among people aged 15-24 stood at 45.1%. At 52.5%, males had a comparatively higher participation rate than females (37.8%). Participation rate among males is consistently higher across all districts, with only marginal gender differences in participation rate in the capital Maseru. At about 16%, the unemployment rate for women is slightly higher than the 15% for males. While more than 50% of youth are economically inactive, those with secondary and tertiary-non graduate levels of education are disproportionately more affected.
The survey shows 60.0% of employed youth are engaged in agriculture, hunting and forestry and 10.1% in manufacturing. In urban areas, the manufacturing sector employs 31.4% of youth, while 71.2% of employed youth in rural areas are engaged in agriculture, hunting and forestry industry (71.2%). Privatization of parastatals and civil service reform over the past decade has facilitated the retrenchment of thousands of jobs in the clothing and footwear industries. As a result the economy is unable to create formal employment opportunities for the 25,000 young men and women entering the labour market each year, as the national labour force of 1.2 million people expands at an average annual rate of 2.1%.
The effort to ease the challenges of integrating youth into the labour market through the promotion of self-employment led to the creation of the Youth Employment Promotion Project (YEP) in 2006. YEP is implemented by the Ministry of Gender, Youth, Sports and Recreation, (MGYSR) and is supported by the United Nations Development Programme, (UNDP) in collaboration with the International Labour Organisation, (ILO), the Commonwealth Youth Initiative, (CYI) and the Moliko Micro Finance Trust, (Moliko). A draft national action plan on youth employment is already in place and the ministry is moving ahead to implement an entrepreneurship development programme. This will provide training and mentoring for the youth, mobilize resources and establish strategic partnerships for youth employment.
The pilot phase of the project demonstrated that with efficient guidance and support from government and development partners the youth can be placed in a better position to create self-employment opportunities. During the pilot phase (2007-2009) 2000 youth were trained in the skills of entrepreneurship and as a result, between 2008 and 2009, 500 small businesses were established with average employment of 1.6 per establishment. The project was useful in dispelling the characterization of the youth as risky borrowers and thus un-bankable. The repayment rate for trained youth who received credit under the Lesotho Youth Credit Initiative (LYCI) was over 85%. LYCI is an initiative designed to encourage entrepreneurship development through credit provision as part of the Commonwealth Youth Initiative and was initially launched in 2005. After a brief spell with World Vision, the LYCI was reorganized under Moliko Micro Finance Trust, (Moliko)
The recent evaluation of the YEP, by UNDP, found a very high level of satisfaction with the programme on the part of the Government of Lesotho, as evidenced by the financial subvention the government will be making to the expanded programme; on the part of the UN partners, who also indicated their keen interest in an expanded programme; on the part of the Moliko, which intends to increase its capacity in response to demand for credit amongst the youth (and other groups); amongst programme beneficiaries, who have high expectations of continued capacity building and credit support; and amongst other non-benefiting individuals, among whom there is anecdotal evidence of high interest in similar training and credit providing programmes.