South Africa vs. Lesotho

South Africa is a middle-income emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; and a stock exchange that is Africa's largest and among the top 20 in the world.

Economic growth has decelerated in recent years, slowing to an estimated 0.7% in 2017. Unemployment, poverty, and inequality - among the highest in the world - remain a challenge. Official unemployment is roughly 27% of the workforce, and runs significantly higher among black youth. Even though the country's modern infrastructure supports a relatively efficient distribution of goods to major urban centers throughout the region, unstable electricity supplies retard growth. Eskom, the state-run power company, is building three new power stations and is installing new power demand management programs to improve power grid reliability but has been plagued with accusations of mismanagement and corruption and faces an increasingly high debt burden.

South Africa's economic policy has focused on controlling inflation while empowering a broader economic base; however, the country faces structural constraints that also limit economic growth, such as skills shortages, declining global competitiveness, and frequent work stoppages due to strike action. The government faces growing pressure from urban constituencies to improve the delivery of basic services to low-income areas, to increase job growth, and to provide university level-education at affordable prices. Political infighting among South Africa's ruling party and the volatility of the rand risks economic growth. International investors are concerned about the country's long-term economic stability; in late 2016, most major international credit ratings agencies downgraded South Africa's international debt to junk bond status.

Small, mountainous, and completely landlocked by South Africa, Lesotho depends on a narrow economic base of textile manufacturing, agriculture, remittances, and regional customs revenue. About three-fourths of the people live in rural areas and engage in animal herding and subsistence agriculture, although Lesotho produces less than 20% of the nation's demand for food. Agriculture is vulnerable to weather and climate variability.

Lesotho relies on South Africa for much of its economic activity; Lesotho imports 85% of the goods it consumes from South Africa, including most agricultural inputs. Households depend heavily on remittances from family members working in South Africa in mines, on farms, and as domestic workers, though mining employment has declined substantially since the 1990s. Lesotho is a member of the Southern Africa Customs Union (SACU), and revenues from SACU accounted for roughly 26% of total GDP in 2016; however, SACU revenues are volatile and expected to decline over the next 5 years. Lesotho also gains royalties from the South African Government for water transferred to South Africa from a dam and reservoir system in Lesotho. However, the government continues to strengthen its tax system to reduce dependency on customs duties and other transfers.

The government maintains a large presence in the economy - government consumption accounted for about 26% of GDP in 2017. The government remains Lesotho's largest employer; in 2016, the government wage bill rose to 23% of GDP - the largest in Sub-Saharan Africa. Lesotho's largest private employer is the textile and garment industry - approximately 36,000 Basotho, mainly women, work in factories producing garments for export to South Africa and the US. Diamond mining in Lesotho has grown in recent years and accounted for nearly 35% of total exports in 2015. Lesotho managed steady GDP growth at an average of 4.5% from 2010 to 2014, dropping to about 2.5% in 2015-16, but poverty remains widespread around 57% of the total population.