A worthwhile investment option

A worthwhile investment option

The debate about whether or not Gross Domestic Product (GDP) or its derivative GDP per capita is a good measure of welfare or indeed economic development of a nation is still up in the air. Simply defined, GDP is the total value of goods and services produced in the country at a given time.
The GDP per capita then becomes a share of that GDP attributed to each individual within the population of that country.
It is obtained by simply dividing GDP by the population of that country. Lesotho GDP per capita was above US$1,350 in 2017. The World Bank classifies countries under the category of Low Income Countries (LICs) if their per capita income is lower than US$1,025. Lower Middle Income countries are those with per capita income between US$1,026 and US$4,035.

By that classification, it therefore follows that Lesotho falls in the latter group. Tell that to an ordinary Mosotho and they would tell you that a middle income Lesotho is just an oxymoron. With an unemployment rate of 27 per cent (2016) and youth unemployment of 40 per cent (2017), such a doubt from an ordinary Mosotho would be rightly placed.

Lesotho has been growing at relatively good rates averaging 4 per cent between 2010 and 2016. The pertinent question here is whether or not this growth has indeed trickled down to a Mosotho man at grassroots level who is not interested in figures, but in tangible indicators that would convince him that his life and those around him have changed for the better.

The one thing that has become clearer by the day is that there has been a remarkable growth in what one can refer to as the middle income earners in Lesotho, more evident around Maseru and other urban areas around the country.
The rise of the middle class could be indicative of increased income. These middle class earners and other low earners have a responsibility to assist the government achieve its developmental goals by providing funds to the government.

Being a developing country, Lesotho still needs to invest heavily in virtually all sectors of the economy if the welfare of her citizens is to markedly improve. Life expectancy at birth stood at 54 years (the global life expectancy at birth was 71 years) in 2015. Around 40 per cent of the population lived below the poverty line (US$1.25 per day). Of the 6,000 km roadways, 18 per cent were paved in 2015.

All these problems and many others need a lot of funds to overcome, funds which the government does not necessarily have in its purse. Funding especially infrastructural projects such as roads construction come at a hefty price. As a result, the Government of Lesotho, just like every government has to borrow to supplement the revenue that the government collects.

The government borrows from both external and domestic sources. Traditionally, the Government of Lesotho has been borrowing mainly from multilateral creditors such as the World Bank and the African Development Bank; and from bilateral sources such as Kuwait. Being a low income country, Lesotho had access and was eligible to borrow through the soft windows of these multilateral institutions.

This borrowing was characterised by very benign terms that included lower than market interest rates and very long maturity periods. Notwithstanding, these seemingly non-stringent terms come at a great risk brought by changes in the exchange rates in the currency market.
Although the decision to graduate Lesotho from the category of Low Income Countries to that of middle income is a good thing and indicates positive progress as a result of the country’s development policies, it carries within it a few negative aspects.

All these come under the package of non-separable items. The much coveted economic growth comes with the vastly documented costs such as environmental costs. The economy grows partly because of increased general output. This can lead to pollution as well as congestion in that people tend to migrate into areas which hold the promise of job opportunities and better life.

Other costs include social ills such as drug abuse and rising crime levels. These negative spillovers of economic growth will be a subject of discussion for another day, but the graduation of Lesotho into the higher economic category has in it some consequences for the country, the strain of which can be mitigated by the citizens of Lesotho themselves by lending to their government.

Graduating to a higher level would therefore mean that Lesotho is forced to forfeit these cheap terms. For example, if that happens, Lesotho would no longer qualify to borrow from the soft loan windows of the International Development Association (IDA) of the World Bank or the African Development Fund (ADF) of the African Development Bank anymore.
Lesotho will instead be forced to borrow at interest rates that are closer to market interest rates, which means a more expensive loan to service in the future each time the country goes out to borrow.

Given all these, there is an alternative source of funding for the government, and it would come from Basotho themselves.
Lesotho still has a relatively untapped financial market which carries no exchange rate risk at all. With debt from Lesotho domestic financial market constituting a meager 11 per cent of the total public debt stock, together with the ever so likely adverse movement in exchange rates for the South African Rand and the Lesotho Loti due to the looming expropriation of land without compensation touted by ANC and the EFF in South Africa, borrowing from the domestic market is a must for the government.

This, the government can only achieve if Basotho go out there and invest in the government financial instruments. At the moment, the government, through the Central Bank of Lesotho, issues and sells to the public short term financial instruments (treasury bills) as well as long term securities in the form of treasury bonds.

The government pays interest and coupons on these instruments, which together with the fact that they incidentally carry no risk of default makes investing in them a worthwhile financially prudent decision.
Not only does this carry personal benefits to those who would invest in them, but it also carries some form of utility and worth derived from the knowledge that one is exercising one’s responsibility to contribute immensely to the development of one’s own country by funding its government initiatives.  It is imperative to mention here that one does not even have to have a whole lot of money to invest in these instruments, so let us get out there.

By: Mosito Ntema

Previous Shaking up the bridal wear industry
Next Let’s look at Plan B

About author

You might also like

Insight

Rooting out poverty

I have often heard the story that in the Jewish communities around the world, a wad of cash circulates around ‘at least (that is, the minimum)’ 19 individuals ‘within’ the

Insight

You cannot always be right

An interesting weekend . . . made interesting by the fact that I got to do a job I haven’t done in a long while, welding: the melding of metal

Insight

Let’s talk about this Marijuana industry

THE legalisation and decriminalisation of cannabis has been a moot point for decades. The issue has been revived once again with the recent news surfacing about the issuing of a