Advancing inclusive and sustainable growth in Lesotho: The Africa Continental Free Trade Area (AfCFTA) as a catalyst

The commencement of trading under the Africa Continental Free Trade Agreement (AfCFTA) regime on January 1, 2021, marked the beginning of a new era for trade facilitation in one of the world’s largest free trade areas. With the AfCFTA, 54 of the 55 African Union nations agreed to a continent-wide liberalized market for goods and services.

The AfCFTA offers unprecedented opportunities to enhance competitiveness both within the African continent and beyond. It provides African nations with opportunities to drive equitable growth and transform their economies by shifting from low-productivity to high-productivity and value-adding activities.

According to the World Bank, full implementation of the AfCFTA could boost intra-African Foreign Direct Investment (FDI) by 68 percent and external investment by 122 percent.

This FDI can boost economic growth in Least Developed Countries (LDCs) such as Lesotho by injecting much-needed capital for job creation, industrial modernization, and improved productivity, while also integrating local economies into global markets through targeted export-oriented sectors.

The AfCFTA can generate positive spillovers for Lesotho and other African countries by promoting trade expansion, which can enhance domestic revenue generation and help address their development financing needs.

Given Lesotho’s small domestic market, AfCFTA offers a vital opportunity to extend its market size with benefits for private sector development to enable access and participation in the much larger continental market of over 1.3 billion people.

The AfCFTA can enhance productivity in key sectors prioritized by Lesotho’s National Strategic Development Plan (NSDP II), such as agriculture, textiles, and light manufacturing, which also have strong participation from women and youth.

Tapping into the African market can help Lesotho diversify its exports beyond traditional products such as wool and mohair, textiles, water, and unprocessed diamonds, while enabling deeper integration into regional value chains.

However, fully capitalizing on AfCFTA opportunities requires a vibrant, competitive, and export-oriented private sector, supported by access to finance, a skilled workforce, and the capacity for innovation to produce goods that meet regional demand.

Lesotho’s ability to compete in regional and international trade is constrained by persistent challenges that limit private sector growth and its contribution to the national economy. The private sector remains small and is dominated by Micro, Small, and Medium-sized Enterprises (MSMEs), with micro enterprises – those employing five or fewer people – making up 95 percent of the sector.

Medium enterprises, with 21–50 employees, account for just 1 percent. Additionally, there is a notable gender disparity, with men owning 60 percent of mature businesses, highlighting the need for greater gender equity in the sector.

Key barriers to private sector productivity, competitiveness, and engagement in the AfCFTA include limited access to finance, a shortage of technical and business skills, and low levels of product sophistication. Strengthening the private sector through targeted support and capacity-building is essential to boost productivity, enhance efficiency, and enable greater participation in formal markets, both domestically and across the region.

In addition to being small and less competitive, the private sector faces challenges related to limited understanding of, and compliance with, trade rules, standards, and customs procedures required under the AfCFTA.

Lesotho remains heavily reliant on a narrow export base, primarily consisting of low value-added products and services. This concentration undermines economic resilience, making the country highly susceptible to global price volatility, shifting demand patterns, and trade disruptions. A further critical constraint is the inadequacy of quality infrastructure.

While the Lesotho Standards Institute has been established, the country still lacks the technical capacity and facilities necessary for comprehensive product testing and certification. Consequently, micro, small, and medium enterprises (MSMEs) are often forced to procure these essential services from South Africa, resulting in high operational costs that significantly limit their competitiveness.

The Government of Lesotho recognizes the critical role of the private sector in driving economic transformation and promoting sustainable, inclusive growth. Aligned with the National Strategic Development Plan (NSDP) II, Lesotho aims to shift from a consumer-driven economy to one that is producer- and export-oriented, with the private sector at the forefront of this transition.

In this context, the African Continental Free Trade Area (AfCFTA) presents a strategic opportunity to boost the productivity of micro, small, and medium enterprises (MSMEs) and broaden Lesotho’s export base.

To overcome existing challenges and maximize AfCFTA’s benefits, the Government of Lesotho, with support from the United Nations Development Programme (UNDP), has developed a comprehensive AfCFTA implementation strategy. Spearheaded by the Ministry of Trade, Industry and Business Development, this strategy sets out a clear roadmap for effective integration into the continental market.

Key objectives of the strategy include expanding market access beyond reliance on South Africa; enhancing investment attraction and improving the competitiveness of domestic industries; promoting inclusive growth, with a strong emphasis on women- and youth-led MSMEs; and building productive capacity and institutional strengthening through targeted reforms.

Through the support of UNDP, Lesotho has enhanced its competitiveness in the textiles sub-sector by promoting the development of industrial clusters. Micro, Small, and Medium Enterprises (MSMEs) in four key industrial areas – Maseru, Hlotse, Pitseng, and Botha-Bothe – were empowered to participate in cluster-based production.

This initiative aimed to scale up textiles manufacturing, improve coordination and quality standards, and expand access to both local and regional markets, including opportunities under the African Continental Free Trade Area (AfCFTA).

A total of three hundred (300) MSMEs across the four industrial areas received training on the dynamics of the textiles industry, trade opportunities, and business development strategies.

To further enhance regional market access, UNDP is partnering with the Ministry of Trade, Industry and Business Development (MTIB) to conduct market intelligence and identify strategic export destinations for Lesotho’s products. Consequently, MSMEs will be trained to meet the technical standards and regulatory requirements of these targeted markets.

In 2023 and 2024, the United Nations Development Programme (UNDP), in collaboration with the MTIB and GIZ, supported the participation of women-led micro, small, and medium enterprises (MSMEs) in the Intra-African Trade Fair (IATF) held in Egypt and Rwanda respectively for the two years.

These events provided a vital platform for MSMEs to engage with industry leaders and explore emerging market opportunities across the African continent. Some of the supported businesses are part of Her Empire, a UNDP Lesotho initiative focused on empowering women-led enterprises.

The initiative seeks to strengthen the competitiveness, sustainability, and value addition capabilities of these businesses, while also fostering job creation.

Her Empire directly contributes to the implementation of Her AfCFTA, a UNDP Africa Regional programme that promotes the inclusion of women entrepreneurs in the AfCFTA, including its protocol on women and youth.

Participation in the trade fairs enabled the women entrepreneurs to exchange knowledge on the challenges facing MSMEs, identify mitigation strategies, and explore collaboration opportunities. The participants identified new potential markets and successfully registered on Sokokuu Africa, a Pan-African digital marketplace operated by the African Electronic Trade Group, thereby gaining access to AfCFTA markets.

Furthermore, through networking at the IATF, a group of participating businesses jointly developed a proposal aimed at establishing cross-border business partnerships among enterprises from Rwanda, Ghana, and Lesotho, demonstrating tangible outcomes from the initiative.

To further enhance Lesotho’s trade capacity, the government has successfully developed a quality infrastructure (QI) framework for the poultry and horticulture sectors. This initiative, supported by UNDP in partnership with the Millennium Challenge Account, Standard Lesotho Bank, FinMark Trust, the Ministry of Trade, Industry and Business Development, and the Ministry of Agriculture and Food Security, aims to deliver comprehensive, targeted support to strengthen these vital sectors.

The framework is a result of a multi-stakeholder dialogue for both public and private sector actors to examine the challenges and constraints facing poultry and horticulture QI in Lesotho. More importantly, it helped build consensus on the essential steps required to establish an efficient quality infrastructure, one that aligns with national development priorities and global standards.

The AfCFTA offers Lesotho a unique transformative opportunity. With effective implementation, strong support for the private sector, and targeted investment in MSMEs, particularly those led by women and youth, Lesotho can advance inclusive growth, create sustainable jobs, and strengthen regional integration. The AfCFTA can serve as a catalyst for long-term development and meaningful economic progress.

To fully realize these benefits, Lesotho must now move from intention to action, ensuring that no entrepreneur is left behind in this shift toward a more resilient and inclusive growth path within Africa.