… As public administration and taxation dominate Lesotho’s GDP
Kananelo Boloetse
In the first quarter of 2024, taxes on products emerged as a significant contributor to the Gross Domestic Product (GDP).
According to recent data from the Bureau of Statistics (BOS), taxes on products accounted for a staggering 13.2 percent of the GDP, overshadowing several critical sectors in the economy.
This figure places the tax burden above key industries such as agriculture, forestry, and fishing (6.1 percent), mining and quarrying (8.3 percent), and even manufacturing (10.7 percent).
The substantial contribution of taxes to the GDP underscores the heavy reliance on taxation as a revenue source for the government.
Public administration topped the list with 16.9 percent, reflecting the significant expenditure on government activities.
The data reveals a varied economic landscape.
Finance and insurance contributed 12.8 percent, while sectors like electricity and water (8.7 percent), wholesale and trade (8.1 percent), and real estate (3.3 percent) played smaller yet vital roles.
Industries such as construction (2.7 percent), transport and storage (1.9 percent), and business services (1.9 percent) lagged behind.
Education and health, crucial for social development, accounted for only 2.1 percent of the GDP.
Other services, including information and communications (2.0 percent) and hotels and restaurants (0.5 percent), also showed modest contributions.
The significant tax burden, coupled with the varied performance of different sectors, paints a complex picture of Lesotho’s economic health.
Last year in April, the parliament enacted the Tobacco and Alcohol Levy Act which introduced the Tobacco and Alcohol Product Levy (TAPL), a tax that is imposed on the selling of tobacco and or alcoholic products at all stages of the business cycle in the country.
This levy also applies to the importation of these products into Lesotho by businesses and individuals (private shoppers).
Tobacco is charged at 15 percent while alcoholic products are at 7.5 percent.
The rates became effective from October 1, 2023.
Initially when the levy was introduced on March 1, 2023 until September 30, 2023 the rates were 30 percent for tobacco products and 15 percent for alcoholic products.
According to the Quarterly National Accounts of Lesotho First Quarter 2024 published by BOS, the economy of Lesotho demonstrated robust growth of 2.0 percent, reflecting a recovery following the economic disruption of the corresponding quarter of 2023, where the economy witnessed a -1.2 percent growth rate.
BOS said this recent growth also represents a 3.2 percentage point increase compared to the decline in the same quarter of 2023.
“This growth was driven by strong performances across nearly all the industries, except for business services, public administration, and other services, which recorded negative growth rates,” the report read.
It added: “The findings show that, in the first quarter, positive growth rates were observed in twelve of the fifteen industries, which is a remarkable performance compared to the same quarter of the preceding year and surpassing the performance of all quarters of 2023.”
The highest performer, according to the report, is hotels and restaurants, boasting a 15.0 percent GDP growth rate, followed by wholesale and retail trade at 8.6 percent and finance and insurance at 7.6 percent.
Conversely, according to the report, the industries experiencing the lowest levels of performance were public administration, witnessing an enormous decline of 11.0 percent.
Following closely were business services, which dropped by 8.9 percent, and other services, which experienced a 6.1 percent drop.
Key Findings:
Hotels and Restaurants
The hotels and restaurants industry recorded a 15.0 percent growth in the first quarter of 2024, marking a comparatively subdued growth when contrasted with the remarkable 62.7 percent growth observed in the same quarter of 2023. This moderately sluggish increase in the industry’s performance is primarily attributed to a gradual demand for both lodging and restaurant food services. During the first quarter of 2024, the industry contributed 0.5 percent to the overall GDP.
Education and Health
The health and education industry registered a growth rate of 1.7 percent during the first quarter of 2024. This represents a considerable setback compared to the significant growth of 10.3 percent seen in the corresponding quarter of 2023. This sluggish increase is attributed to the induced demand for healthcare services, which increased by 2.2 percent. Initiatives to expand healthcare access and improve service quality also played a crucial role. Education services remained relatively stable, registering close to zero percent growth. The industry contributed 2.1 percent to the overall GDP in the first quarter of 2024.
Agriculture
The agriculture, forestry, and fishing industry recorded a modest GDP growth rate of nearly zero percent in the first quarter of 2024, remaining relatively stable compared to the corresponding quarter of 2023, which registered a growth rate of 0.1 percent. This marginal growth is attributed to the crowning of crops, which faced challenges from adverse weather conditions, especially in the last two months of the quarter, registering a decline of 0.3 percent. Animal production remained comparatively stable, recording around zero percent growth. Despite the low growth rate, the industry continued to make a significant contribution, accounting for 6.1 percent of the overall GDP in the first quarter of 2024.
Business Services
While the overall economy grew, the decline in business services (-6.1 percent) dragged down its performance during the first quarter of 2024. This collapse is attributed to a decline in demand for security and investigation activities as well as administrative and support service activities, which registered -14.1 percent and -16.5 percent, respectively. Additionally, professional, scientific, and technical activities recorded a further decline of 0.7 percent. The business services industry contributed 1.9 percent to the overall GDP in the first quarter of 2024.
Other Services
Other services, one of the least contributors to GDP, experienced a steep downward growth rate of -8.9 percent in the first quarter of 2024. This marked a severe contraction compared to the more rapid growth rate of 15.0 percent documented in the same quarter of the previous year. This substantial decline in the industry is attributed to decreased demand for arts, entertainment, and recreation, as well as a decline in personal services, which registered growth rates of -15.1 percent and -11.0 percent, respectively. Despite the huge fall in the growth rate, the contribution of other services to GDP remained at 0.9 percent in the first quarter of 2024.
Manufacturing
The manufacturing industry recorded a modest increase of 1.2 percent in the first quarter of 2024, which is a significant recovery from a steep fall of -18.6 percent recorded in the same quarter of 2023. This increase is attributed to the rise in international demand for textiles and clothing, especially in the United States through AGOA, recording 0.6 percent growth. This offset declines in the manufacture of food products (-14.7 percent) and the manufacture of beverages (-8.4 percent). Historically, this industry has been the highest contributor to GDP, but due to the recent recessionary phase, it has been demoted to the second-highest contributor, registering 10.7 percent in the first quarter of 2024.
Mining and Quarrying
Despite recording a growth rate of 1.1 percent in the first quarter of 2024, mining and quarrying decelerated from a substantial growth of 10.2 percent registered in the same quarter of the previous year. This rise in the current quarter is accredited to an increase in carats of diamonds sold, as well as the improved quality of stones recovered from the mines. Although quarrying witnessed a very steep decline of -15.4 percent, this was offset by an increase of 2.7 percent constituted by the weighty mining of diamonds. Unlike manufacturing, mining and quarrying witnessed an elevation in their ranking among the most contributing industries in the economy. It regained its historical position by moving from the fifth to the fourth position, accounting for 8.3 percent in the first quarter of 2024.
Electricity and Water
The electricity and water industry registered a recovery of 2.1 percent in the first quarter of 2024 from a very low base of -8.7 percent witnessed in the same quarter of 2023. This improvement is attributed to the increase in the supply of electricity as well as an increased supply of water, recording 2.6 percent and 1.7 percent, respectively. Historically, this industry also saw an elevation in their ranking among the most contributing industries in the economy by moving from the sixth to the third position, accounting for 8.7 percent in the first quarter of 2024.
Wholesale and Retail Trade
The wholesale and retail trade industry saw a substantial recovery of 8.6 percent in the first quarter of 2024 from a considerable contraction of -9.1 percent witnessed in the same quarter of the previous year. This recent improvement is attributed to higher consumer spending in activities related to general trade and retail trade of fuels, as well as possible spillovers from the huge construction project from Polihali. On the other hand, trade and repair of motor vehicles saw a steep decline of -7.9 percent, although this was offset by the former increase. The contribution of this industry to GDP stood out significantly at 8.1 percent in the first quarter of 2024.
Finance and Insurance
The finance and insurance industry recorded a significant growth of 7.6 percent in the first quarter of 2024, matching the magnitude experienced in the same quarter of 2023. This increase in the recent quarter is attributed to significant growth in other monetary intermediation, particularly within commercial banks, which experienced an exponential 8.9 percent increase. This was driven by increased stocks of loans and deposits, which individually recorded increases of 13.2 percent and 18.9 percent, respectively. Additionally, other financial service activities, including microfinance services, also increased significantly by registering 5.9 percent. In essence, the industry’s growth is supported by digital transformation and improved financial services. As a result of this robust performance, the finance and insurance industry transitioned from being the second-largest contributor to becoming the top contributor to GDP, recording a significant 12.8 percent contribution in the first quarter of 2024.
Construction
The construction industry recorded a moderate growth of 3.0 percent in the first quarter of 2024, although this represents a deceleration compared to the 3.7 percent growth rate observed in the same quarter of 2023. This recent increase is attributed to ongoing infrastructure projects, residential and commercial real estate developments, and government-funded public works. Major projects include the Polihali project, highway expansions, and smart city initiatives. The construction industry contributed 2.7 percent to the overall GDP in the first quarter of 2024.
