MASERU – In his first budget speech in July 2017, Minister of Finance Dr Moeketsi Majoro observed that the twin evils of political instability and a decline in the rule of law could stall economic growth if left unchecked.
Specifically, the 2017/18 budget allocations focused on pursuing fiscal sustainability against a backdrop of political instability and insecurity.
“Good governance, rule of law and the fight against corruption are the cornerstones of any progressive society. Corruption remains a serious challenge to development not only in Lesotho, but globally as well,” Majoro said.
Reference to political instability was mounted on a history of misrule, military interference in the political space, suspension of parliament and overthrow of the constitution.
The Thomas Thabane coalition government was, after all, elected to replace the old order of tyranny inspired by rogue military elements that were propping a ruling elite.
Lawlessness, Majoro argued, was a curse to efforts to revive a comatose economy.
“Macro-economic stability and sustainability can only be guaranteed in an atmosphere of political stability and security.
“More importantly, fiscal discipline and the rule of law will ensure that where transgressions have been committed, the perpetrators are brought to book and public funds recovered,” he said.
It seems, however, his wise counsel and good intentions have failed to galvanise any upward trajectory in economic growth.
Two years down the line, nothing has changed. The economy is tanking and feeling the consequences of never-ending political squabbling, leaving government broke.
In fact, it is safe to say that since then, things have deteriorated and continue to plummet.
Evidence abounds that the inexorable slide will continue into the foreseeable future as politicians bicker viciously in their bid to lay hands on the levers of power and state resources.
The competition for vantage positions around the feeding trough is more intense in the ruling All Basotho Convention (ABC), where leader Thomas Thabane is fending off a cabal of Young Turks seeking to dislodge him from the top of the food chain.
Worryingly, the ripple effects of the ABC civil war have cascaded down to most facets of the state.
Today, the judiciary, the Independent Electoral Commission (IEC), the National University of Lesotho (NUL) and the Lesotho Mounted Police Service (LMPS), are all in a state of flux.
The net effect of these internal ructions in key institutions charged with protecting democracy and the rule of law, is capital flight.
Observers believe these ills and Thabane’s seeming disinterest in fixing these problems are the nadir to the country’s persistent economic troubles.
Thabane appears more intent on fanning unrest in the judiciary believing, rightly or wrongly, that he needs to exert executive authority over the courts to successfully manage the country.
The counter-argument to this theory though is that he wants to use the judicial guillotine to neutralise his political detractors and tighten his grip on power.
This thinking is, however, at cross-purposes with Majoro’s plea to his cabinet colleagues and public servants that “all of what is planned…can only be successful if we, as a collective, put our hands together in ensuring success”.
“I therefore call on all my colleagues in Cabinet and public servants as a whole to join hands and turn these commitments into reality.”
Majoro’s thought process is easily discernible in the current budget where he attempts to steer the economy through the proverbial eye of a needle.
This even as he struggled to overcome unfavourable variables manifest in a hostile international investment climate and homegrown obstacles, such as Thabane’s meddling in the judiciary.
Experts argue Majoro’s good intentions were doomed from the outset because of bad politics, which are unfortunately inextricably linked to economics.
The two cannot easily be separated says the International Monetary Fund (IMF), adding the faltering of one can stunt growth.
While minister Majoro is adamant that there is going to be light at the end of the tunnel the IMF, on the other hand, observed after consultations with the Lesotho government in April this year that instability continues to threaten growth.
“Political instability, low human capital and unstable and burdensome regulations combine to constrain private sector development.
“With unemployment at around 25 percent and over half of the population living under the US$1.90 (about M26) poverty line, social indicators suggest the depth of the development challenge ahead,” the IMF concludes.
Under Article IV of its Articles of Agreement, the Bretton Woods institution is mandated to hold bilateral talks with members every year.
Majoro himself reiterated in one of his latest presentations that this is not the right time for the country to be stuck in a political cesspool.
This, the minister said, could further hurt dwindling hopes of reviving the economy.
In March this year, government launched the Lesotho Investment and Economic Laboratory in an attempt to respond to the high rate of unemployment.
During the launch, Prime Minister Thomas Thabane said this was one of government’s initiatives to promote private sector-led, inclusive and sustainable economic growth.
He listed commercial agriculture, tourism and creative industry, manufacturing and technology and innovation as the four key sectors in reviving the ailing economy.
Following the successful economic labs initiative, Minister Majoro revealed that out of 400 project proposals received, 77 are now ready for investment.
On top of the 77, the minister said there were another 143 other good proposals with enough potential but did not have equity coming with them.
“The 77 came with the M20 billion investment and would create 30 thousand jobs for the next five years. They are putting in M20 billion but they ask M1.5 billion from us as government and we are going to put that money in,” Majoro said during a Nedbank Lesotho gala dinner on Wednesday last week.
The initiative, however, could be collapse due to political instability.
“This is the first time in 50 years that Lesotho has ever come this far in organising investment. So this is not the time to have this political mess that we currently have. We have been playing for a long time.
“We have undergone a lot of confusion since February in Lesotho and for those who are thinking whether they will have a business in future, it is more bewildering because I know nobody can really explain what is going on in Lesotho.
“Politics needs to provide space for such initiatives because we have to be a country that attracts investment,” Majoro added.
With the ongoing imbalances in local political spectra, particularly within the ABC party, investors normally stay away until the dust settles.
As a result, several sectors of the economy are stressed.
Economists consider political instability a serious disease harmful to economic performance either due to conflict or extensive competition between various political parties.
Similarly, a government change can increase the possibility of successive changes, shortening policymakers’ horizons.
This can lead to formulation of a gamut of sub-standard short-term policies, a frequent switch of policies, creating volatility and thus, negatively affecting performance.
In the main, political instability affects the investment climate negatively which in turn reduces Foreign Direct Investment (FDI) inflows and resulting in slow economic growth.
Experts link political risk to confiscation or damage to property, production disruption, threats to personnel, including operational restrictions that impede the investors’ ability in undertaking certain actions, riots, and changes in the regulatory environment.
Investors will prefer not to invest and risk their capital in an unstable environment.
Corruption that is politically motivated significantly reduces FDI inflows to affected countries.
During his official visit to Lesotho, the Nedbank Group Chief Executive Officer (CEO) Mike Brown conceded politics have a big role to play in economic growth.
He noted that uncertainty, not only in Lesotho but around the world, has a negative impact on investment and therefore reduces global economic growth.
Using the United States’ ongoing trade war with China as an example, he said, uncertainty was not good for business.
“Looking at the United States (US), we have a different type of the US than many of us experienced in our lifetime given the extremely strong nationalistic tendencies coming out of the Trump presidency and less of the role of world leaders that many of us are accustomed to over many years and certainly I think the nationalistic tendencies continue to ramp up and up and clearly that cannot be good for overall global growth.
“In the last couple of months most of the global forecast for growth around the world have all started to be revised downwards with current overall global growth predicted at somewhere around 2.6 percent having previously been predicted somewhere at just above 3 percent.
“And I think, in particular, as this trade war pushes more into technology which has been such a strong driver of growth in the world, it will have greater impact on growth,” Brown said.
He emphasised that Lesotho needs investment to create economic growth and generate jobs.
But it is impossible for the country to purport to be pro-economic growth on one hand, while it is anti-business on the other hand.
“Policy uncertainty and contradictions between policies is negative for investment and, as result, leads to negative for economic growth and sluggish job creation. If the environment is not conducive, unfortunately investors will choose to wait until things become clearer,” he added.
His argument dovetails with Matthias Busse and Carsten Hefeker who, writing in a paper entitled Political Risk, Institutions and Foreign Direct Investment, conclude that monetary and financial sector policies should focus on safeguarding stability while improving the legal framework to encourage private sector lending.
They stress results of several studies on the relationship between fundamental democratic rights and FDI which concluded that multinational corporations are more likely to be attracted by countries in which democracy is respected.
On the other hand, democratic rights lead, above all, to improved property rights protection which in turn boosts foreign investment.