Lesotho-EU cooperation:
Power for the people

by J. Jochem Zuidberg

Full text of an article from The Courier ACP-EU
No. 154, November- December 1995: pages 44-47

(Note: this text may differ slightly from the printed version)

It is often said that Lesotho merits a mention in the Guinness Book of Records, because of its unique geographical circumstances - circumstances which incidentally have an important impact on the local economy. In the first place, it is the only country in the world all of whose territory lies above 1500m. This explains why it is is often referred to as 'The Kingdom of the Sky', why it is possible to go skiing there at certain times during the winter and the importance of horses to the Basotho. With the need to cook meals and keep warm, it also accounts for the almost complete absence of trees or even bushes in the Highlands. Maize must be sown in early summer if the crop is not to freeze before it matures.

Another unique feature is that Lesotho is the only state of any size to be completely surrounded by the territory of another country (South Africa). Related to this is the fact that, until very recently, more than half of Lesotho's GNP was generated beyond its border, mainly in the form of salary transfers by migrant Basotho working in the South African mines. Taken together, these two factors account for Lesotho's dependence on a country which, until two years ago, was an international pariah because of its apartheid system. Rather than a frontline state, Lesotho was, in fact, a prisoner state. In 1985, South Africa only had to close the border for a few days to force Lesotho to its knees, paving the way for the first military coup against a government seen as too friendly to black South African liberation movements.

Ironically, now that the apartheid beast has been slain and democratic South Africa under Nelson Mandela looks to a brighter future, the equally young democratic government of Lesotho might be justified in having mixed feelings about the changes that have occurred in its powerful neighbour. Few dispute that these have had some negative consequences for the enclave state. The number of Basotho miners in South Africa dropped at the beginning of the 1990s on account of the general crisis in gold mining and increased mechanisation. The proportion, however, remained significant at about 38% of the total labour force. This share of the total is now under pressure as South Africa looks to tackling its unemployment crisis. 40% of South African do not have jobs, a percentage which is similar to the current unemployment rate in Lesotho. The likelihood is that preference will be given to South Africa's own population in mining jobs. Another factor is Lesotho's share of income from the Southern Africa Customs Union (SACU). This currently accounts for more than half the country's revenues, but the sharing formula is now being reconsidered, while South Africa is gradually dismantling the protective barriers which were a feature of the time when sanctions operated. Lesotho's state revenues seem certain to be reduced as a result.

Finally, as the 'prisoner' of South Africa during the time of apartheid, Lesotho used to be particularly favoured by many aid donors. Attention has now shifted to Lesotho's larger neighbour, some bilateral donors have left altogether and others are showing less interest in the country. This is not the case as far as the European Union and its Member States are concerned. The UK, Ireland (for whom Lesotho is a 'concentration' country) and Germany (to some extent) have maintained their bilateral aid programmes. Meanwhile, under successive Lom‚ Conventions, the EU has consistently increased its commitment as well as becoming involved in a wider variety of actions.

The Muela Hydropower Project, which is technically part of the much larger Lesotho Highlands Water Project (LHWP) has received backing under various Lom‚ Convention instruments since the mid-1980s. The latter, which is specially featured in a preceding article, is designed to transfer water from Lesotho's upper Senqu (Orange) River basin directly to the industrial area around Johannesburg. The direct benefits of this scheme will accrue to South Africa which has offered 50% of the savings resulting from this project to Lesotho.

There was, of course, no question of the EU being associated with such a deal involving the old South Africa. But from the outset, the Commission encouraged the idea of using the water to generate power for the people of Lesotho, thereby reducing their dependence (currently 99%) on South African electricity. The EU's readiness to earmark a considerable proportion of its concessional aid to this project was almost certainly a key factor in the government's decision to go ahead and seek other sources of finance. The total cost of the hydroelectric scheme will be about ECU 170m. The EU's overall contribution will amount to some ECU 85m (ECU 52m through the National Indicative Programmes, ECU 18m in risk capital, ECU 5m from the EIB's own resources and ECU 10m from regional funds). ECU 21m of this has already been spent on various preparatory studies and the remaining ECU 64m - provided by the Commission and the EIB under Lom‚ IV - is mainly being used for the construction of the tail pond dam, the electricity operations building, design and supervision. The balance is financed by South Africa's Development Bank with export promotion funds, and commercial loans. The hydropower station is well under way and the work is expected to be completed in 1998. The Katse Dam and water transfer tunnels are due to come on stream at about the same time.

The EU's financing includes contributions for protecting the environment and for a manpower development programme aimed at increasing the Basotho proportion of engineers and technicians required to run the sophisticated hydropower and water transfer operations.

With the exception of water and labour, Lesotho has few resources. Only 9% of the country is arable. A generation ago, the figure was 13%, a revealing indication of the amount of land being lost to erosion. The soil is generally of poor quality and yields of the main staple crops; maize, sorghum and wheat, are declining. The non-arable mountain areas are also rapidly deteriorating because of overgrazing. For the Basotho, livestock are a traditional source of wealth and large numbers of cattle, sheep and mohair goats are raised in the Highlands. In its cooperation programmes, the EU has made a considerable contribution to offsetting these negative trends. These include improving livestock practices (mainly using Stabex funds generated by the decline in wool and mohair export earnings since 1987) and helping to promote agricultural diversification involving both irrigation (vegetables) and dry crops (notably asparagus) at the smallholder level. Land conservation has been increasingly financed through social forestry programmes with the money coming from the NIP, the Commission budget and food aid counterpart funds.

With the soil deterioration that has occurred, Lesotho now only produces between 40% and 55% of its cereal requirements. The EU has, therefore, systematically provided some balance of payments relief in the form of food aid, to the tune of about 8000 tonnes a year. Sold on the local market, this has proved a welcome source of extra funding for small rural projects.

Prior to 1992, droughts were rare in the region but since that time, Southern Africa in general and Lesotho in particular have been hard hit by the lack of rainfall. The existence of the rural population is precarious at the best of times and their position has been made even more vulnerable by the recent dry spells. Thus, free distribution of food - which is common in other parts of Africa - became a necessary evil in Lesotho as well. The EU has been the principal contributor of this humanitarian food aid, providing 15 000t of maize in 1992-93. 20 000t of maize and 1500t of beans are due to arrive by the end of 1995 as part of the 1995-96 distribution programme.

Since 1992, the EU has financed microprojects to the tune of about ECU 1 million a year under the Lom‚ IV NIP. Given the modest size of these projects - generally they involve an EU contribution of less than ECU 10 000 - this figure represents help in developing the economic or social infrastructure of roughly 100 village communities each year. A flexible management unit, staffed with assistance financed by Irish aid, has been set up to implement this programme. The unit also deals with similar small-scale projects paid for out of food aid counterpart funds. This type of assistance, which is highly appreciated, is likely to be developed further with the decentralisation of power from government to districts and village development committees.

Aproximately ECU 30m was used in the past for economic infrastructure, especially the upgrading of the main south road. The EU is now expected to join forces with the World Bank in a major road rehabilitation and maintenance programme to start in 1996.

In 1988, Lesotho embarked on a structural adjustment programme. This has largely been successful in correcting previous macro-economic imbalances, especially in terms of budgetary discipline. It has had less impact, however, in terms of implementing structural reforms such as privatisation, although the government continues to enjoy IMF backing. As a result, Lesotho is eligible for Lom‚ IV structural adjustment support. It has received ECU 20.6m under this heading for the period 1992-96. These funds are used to support the balance of payments by financing imports, while the counterpart funds generated in local currency contribute to the social chapters of the government's budget, with a view to offsetting the negative effects of the SAP on the more vulnerable sections of the population. This has enabled the government to step up its programmes in primary health care, primary education and village water supply - all areas which have previously been the subject of classic EDF projects.

In addition to its contribution to the Muela Hydropower Project, the EIB has, since the early 1980s, provided some ECU 10m in risk capital loans to the Lesotho National Development Corporation (LNDC). This has helped bolster its efforts to attract foreign investors into labour-intensive, medium-scale industries. These funds have been on lent to firms or used to finance factory shells which are offered for lease on flexible terms to potential investors. The EU has also provided an additional incentive for the textile industry by offering an exceptional derogation from its rules of origin for garments produced in Lesotho from cotton of non-ACP orgin. These two measures have helped the LNDC to create 15 000 jobs, mainly for women.

One should be aware, however, that each year sees some 25 000 young people joining the ranks of the unemployed. This poses an enormous challenge to the democratically-elected government of Dr Ntsu Mokhehle which took office in 1993. The EU and its Member States have strongly supported the democratic process in Lesotho, both financially and otherwise. But democracy can only work properly in an environment where the government is able to meet at least some of the people's expectations for a better future. This entails more than simple social or poverty alleviation measures and must include job creation in the formal and informal sectors in both rural and urban areas.

It is obvious that Lesotho cannot make much progress in isolation from the Republic of South Africa, particularly given that the problems faced by the latter are very similar. Daily, it becomes clearer that the prospects for success depend on effective economic integration with the wider Southern Africa region. The EU is ready to support such efforts under the next NIP (Lom‚ IV - Second Protocol) which is due to be agreed in the coming year. South Africa, in the meantime, is expected to gain some form of status associated with the ACPs under the Lom‚ Convention. Now that this country is a member of SADC as well, the focus of the EU's regional cooperation programme is shifting away from the 'anti-apartheid' theme towards constructive economic development for the whole region. The peace and economic stability needed for this to work are now being consolidated, and this can only be good news for Lesotho and the Southern African region as a whole.

Updated on December 15, 1995

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