Lesotho’s economic environment continues to confront significant headwinds as the country enters the 2026 financial year. Key economic sectors, historically central to growth, employment and fiscal stability are exhibiting sustained contraction or volatility. This report outlines the principal structural and external challenges shaping the national economic trajectory and considers their implications for the broader commercial sector.
Limited Domestic Impact of the Polihali Dam Project
Notwithstanding the scale and strategic importance of the Polihali Dam under Phase II of the Lesotho Highlands Water Project, the anticipated economic spillovers have not materialised to the extent previously envisaged. Unlike the Katse and Mohale projects, which generated substantial domestic economic activity, procurement and labour patterns in the current construction phase have yielded limited multiplier effects. As a result, local enterprise, including professional services, suppliers and commercial operators, have not experienced the broad-based uplift that was expected to accompany this major infrastructure investment.
Severe Contraction in the Diamond Mining Industry
The rapid expansion of laboratory-grown diamonds in global markets has fundamentally reshaped the international diamond value chain and significantly disrupted Lesotho’s natural diamond mining sector. Most mining operations have either ceased production entirely or reduced output by more than 75%, with only one mine still operating at a substantially reduced capacity. The resultant decline in export revenue, employment and associated commercial activity has had profound domino effects across the wider economy, affecting contractors, suppliers, transport operators and various downstream businesses.
Downturn in the Textile and Apparel Sector
Lesotho’s textile industry, a cornerstone of private-sector employment, continues to experience acute instability. Global trade realignments, coupled with tariff adjustments affecting exports to the United States, have led to a sharp reduction in orders, factory closures and significant retrenchments. The contraction of this sector has diminished household incomes, reduced consumer spending power and weakened business confidence across multiple commercial segments.
Funding Reductions in the NGO and Development Sector
The Non-Governmental Organisation sector, long regarded as a stable source of employment and economic activity, has been adversely affected by sudden and substantial reductions in donor funding, particularly from the United States. Several NGOs have scaled down programmes, suspended operations or restructured their budgets. This has led to diminished procurement activity, fewer service-provider engagements and reduced economic participation from a previously reliable contributor to the domestic economy.
Commercial Outlook for 2026: Contraction and Consolidation
Taken together, these sectoral disruptions indicate that the commercial environment in 2026 will remain constrained. Businesses across the spectrum are anticipating continued pressure on revenues, weakening demand, and intensified cost-containment imperatives. Commercial entities are increasingly expected to:
- Defer capital investments and expansion initiatives;
- Renegotiate contractual and supplier arrangements;
- Prioritise essential operational expenditure; and
- Adopt more conservative financial and risk-management strategies.
In this climate, organisational resilience will depend on prudent financial stewardship, a disciplined approach to cost structures and proactive strategic planning. A comprehensive mid-year review, particularly in the second quarter of 2026, will be essential for reassessing operational priorities, evaluating financial performance, and identifying opportunities for consolidation, diversification or strategic repositioning in response to evolving market conditions.