Mining sector continues to shrink

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By ‘Majirata Latela

The mining sector is estimated to have contracted by staggering 15.1 percent in 2020/21 before recovering to 6.4 percent in 2021/22.

According to Lesotho’s budget speech 2021/22 Budget speech, this contraction comes after all mining companies were placed under care and maintenance in the second half of 2020 due to disruptions from the pandemic.

“Over the medium-term, the mining sector is expected to grow steadily at an annual average rate of 3.7 percent. This is based on anticipated recoveries of higher-grade germ diamonds at one of the biggest mines, coupled with expected rise in production and diamond prices.

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“The manufacturing sector is set to record a disappointing growth of -14.2 percent in 2020/21, with textiles, clothing, footwear, and leather expected to contract by 18.6 percent due to disrupted supply chain and demand side shocks caused by COVID-19 pandemic. The reduction in factory activity has led to huge cost cutting measures employed by firms.

“These measures have let to decrease in employment of 3.5 percent in the first quarter of 2020/21, while on average 7.3 percent of the jobs have been lost to date. In 2021/22 the sector is expected to recover to 4.6 percent before growing at an annual average rate of 5.3 percent in the medium-term. This growth will be supported by the rollout of the COVID-19 vaccine which will supposedly improve global economic outlook, particularly the recovery in US and RSA,” the budget reads.

Not only are the mines affected this year, government construction projects for 2020/21 fiscal year have been deferred due to lockdown and budget reallocation towards COVID-19 mitigation measures at the beginning of the year.

The pandemic has not only affected public investment projects but also private projects thereby detrimentally affecting the sector to plummet by -13.0 percent in 2020/21. In 2021/22, the sector is set to experience strong growth of 19.5 percent before expanding by 34.3 percent in the medium term following expected commencement of all previously suspended projects as economies open.

Mining is one of the key streams of revenue for Lesotho’s economy. It contributes 14.4 percent to the country’s GDP and about 12.6 percent of all formal jobs are in the sector.

Global factors such as the US-China trade relations will affect the sector, as Lesotho’s diamonds are auctioned in Belgium; cut and polished in India; sold to China for further processing; and the US is the major consumer. The COVID-19 pandemic further compounds this complex global value-chain because of the ongoing lockdowns these countries.

Furthermore, local diamond mines are reportedly under pressure due to the pandemic with two large companies announcing temporary closures and retrenching workers. Many Basotho are also employed in the South African mines. Out of the 19,000 Basotho mineworkers in South Africa, about 15,000 returned in March 2020. A continued lockdown not only causes risks to regaining jobs but also increases food insecurity owing to the lack of reliable alternative sources of income and the reduced amount of remittances by the mine workers