Textiles and diamonds are not forever: Lesotho faces an economic crisis amid AGOA fallout

MOSHE KAO

A Looming Economic Perfect Storm

Lesotho’s economy is facing one of its most serious threats in decades. In April, US President Donald Trump announced 50 percent tariffs, the highest of any country, worse off to a least developed country, on goods from Lesotho. The tariffs were later paused to a flat 10 percent rate which is currently being applied to most countries.

From August 1 the imposed 10 percent will be lifted and higher rate implemented. The governments of Lesotho and South Africa had pleaded with the US government not to increase the tariffs. However, in the last week of July, the US decided to revoke South Africa’s preferential access under the African Growth and Opportunity Act (AGOA) and impose tariffs of up to 30 percent that has set off a chain reaction for the entire Southern African Customs Union (SACU).

As Lesotho is bound by SACU’s Common External Tariff (CET), these tariffs also apply to its exports, despite the country not being the direct target of the decision.

The situation is also exacerbated by a weakening US Dollar, which has eroded revenues from Lesotho’s second-largest export sector, diamonds. The combination of trade shocks and falling foreign exchange earnings threatens to derail the country’s fragile economy.

SACU’s CET: Why Lesotho is vulnerable

SACU members share a Common External Tariff (CET), meaning any tariff imposed on South Africa applies equally to Lesotho and other members. When the Trump administration announced that tariffs on South Africa would rise from 10 percent to 30 percent and on Lesotho to 50 percent from 1 August 2025, Lesotho had no independent recourse to mitigate the impact.

This arrangement, which has historically benefited Lesotho through revenue-sharing, has now become a major vulnerability. Customs duties collected at South African ports are pooled and distributed to SACU members, making Lesotho heavily dependent on South Africa’s trade fortunes.

The collapse of the textile sector

The textile and apparel industry is the backbone of Lesotho’s economy. It accounts for between 41–56 percent of the country’s total global exports and contributes approximately 11 percent of GDP. The sector has long relied on preferential duty-free access to the US market under AGOA.

Figure 1 – Lesotho Exports to the World – textile and apparel disaggregated – Source UNCTADStat

The revocation of AGOA benefits is catastrophic. Textile exports that previously entered the U.S. duty-free will now face tariffs of 10–50 percent, rendering Lesotho’s goods uncompetitive overnight. Factories, many of which were established solely to benefit from AGOA preferences, have already begun closing. The consequences are severe: over 30 000 workers, 80 percent of them women, are at risk of losing their jobs.

The government has already declared the jobs crisis a national disaster with unemployment already at 30 percent. With textile exports to the US previously valued at $230 million annually, this collapse will severely reduce foreign exchange earnings and government revenue. As illustrated below, the US market is the third largest export market for Lesotho, 24 percent of the total exports

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“This isn’t adjustment; it’s annihilation,” said Lerato Molefi, a union leader, outside a shuttered factory in Thetsane.

Figure 2 – Lesotho exports to the World 2024 – Source UNCTADStat

Diamonds Are Not Forever

While diamonds are Lesotho’s second-largest export, generating approximately $270 million in 2024, they cannot cushion the blow. The diamond sector is capital-intensive and heavily dependent on global luxury demand.

A 12 percent decline in the U.S. dollar since January has cut diamond revenues when converted to the local currency, the Maloti. Global economic uncertainty and sluggish luxury spending further undermine the sector. Lesotho’s flagship Letseng Diamond Mine has already announced the retrenchment of 250-300 employees, adding to the existing unemployment crisis. The collapse of the dollar has turned unemployment into a catastrophe for Lesotho.

SACU revenue crisis: A budgetary black hole

Lesotho’s fiscal stability is tightly linked to the SACU revenue-sharing pool, which funds over 50 percent of the national budget. The collapse in textile exports will reduce imports of raw materials, thereby shrinking customs duties collected at South African ports. Combined with falling diamond revenues, this is projected to leave Lesotho with a budget shortfall of M8.2 billion ($430 million) by the end of 2025. This revenue shock risks paralyzing public services and derailing the government’s ability to respond to the crisis.

Pathways forward: Urgency and pragmatism required

Lesotho faces an existential economic threat. The response must be urgent, coordinated, and multifaceted.

Short-term measures

• Pursue a tactical diplomatic surge to engage U.S. policymakers through Congress and seek temporary tariff relief that aligns closely with the World Trade Organization (WTO) rules especially for preferential rules for LDCs.
• Implement fiscal emergency measures to protect essential public services and support displaced workers.
• Provide targeted support for struggling textile factories to prevent further closures.

Medium-term measures

• Expand access to new markets through the African Continental Free Trade Agreement (AfCFTA) and by tapping into EU and UK markets for ethical fashion products.
• Attract investment into industrial upgrading and diversification to improve competitiveness.

Long-term resilience

• Reduce dependence on SACU revenues by diversifying exports, particularly into agro-processing and other value-added industries.
• Strengthen governance and fiscal management to withstand external shocks.

Without decisive action, Lesotho risks an economic freefall that will take years to recover from.

Conclusion

Lesotho’s dependence on AGOA and SACU revenues has left the country dangerously exposed to external shocks. The simultaneous collapse of its textile sector and the downturn in diamond revenues have created a crisis that requires unprecedented coordination between the government, private sector, and international partners.

By acting urgently to diversify its economy, secure new markets, and reduce overreliance on SACU, Lesotho can begin building the foundations for long-term economic resilience.